The European Central Bank (ECB) is ready to take new measures to help restore the eurozone economy after the crisis caused by the coronavirus pandemic, including lowering the base interest rate on deposits, already in negative territory, ECB President Christine Lagarde said in an interview with The Wall Street Journal.
According to Lagarde, the eurozone economic recovery “looks a little less resilient” amid the second wave of COVID-19 in countries such as France and Spain, and the region's GDP will not return to pre-crisis levels until the end of 2022.
Lagarde noted that global central banks need to maintain soft policies that would support fiscal stimulus measures. “We are ready to use all the tools that will provide the most effective result,” she said.
Currently, the ECB deposit rate is at minus 0.5% per annum, and the Central Bank has so far preferred not to lower it even lower into the negative zone, but to use other stimulating measures.
The ECB, in particular, launched a large-scale share buyback program, as well as a number of programs to provide cheap loans to the banking sector – the total amount of stimulus measures is about $ 3 trillion.
The Federal Reserve System (FRS) and the Bank of England refrain from cutting base rates to negative levels. Meanwhile, European financial institutions have long complained that the negative rate on ECB deposits is negatively affecting their profits.
Lagarde noted that the ECB is currently considering other policy instruments that could be more effective than rate cuts. Nevertheless, according to her, the ECB has not yet come to the point where a rate cut could harm the economy rather than benefit it. “We are ready to respond to the changing situation, to reconcile and adjust everything that needs to be reconciled and corrected,” Lagarde said.
A rate cut by the European Central Bank could limit the euro, which has been climbing against the US dollar in recent months, economists say. ECB leaders have previously indicated that they are concerned about the strengthening of the euro, which is negatively affecting the profits of local exporters and curbing inflation.
Lagarde also noted that vigorous action by states to support economies this year through large spending programs helped relieve pressure from central banks. “We're not alone in this game anymore,” she said. “Unlike the 2008-2009 financial crisis, fiscal and monetary policies now work hand in hand and reinforce each other.”
Following the September meeting, the ECB kept the base interest rate on loans at zero, the rate on deposits – at minus 0.5%, the rate on margin loans – 0.25%.